2021 (5) TMI 703 - HC - Income Tax

Reopening of assessment u/s 147 - penny stock transaction made by assessee - HELD THAT - Assessing officer was satisfied with regard to the information and other materials on record, he formed an opinion that, the income has escaped assessment. Therefore, when the information was specific with regard to transactions of penny stock entered into by the assessee with the Tuni Textiles Ltd., and the Assessing Officer had applied his independent mind to the information and upon due satisfaction, led to form an opinion that, the amount of claim of LTCG claimed by the assessee is chargeable to tax has escaped assessment, which facts suggests that, there is live link between the material which suggested escapement of income and information of belief. Under the circumstances, we are satisfied that, there was enough material before the Assessing Officer to initiate proceedings under Section 147 of the Act. We do not agree with the contention that, merely on the information, the Assessing Officer has recorded the reasons and on the basis of borrowed satisfaction, he formed an opinion with respect to the income chargeable to tax has escaped assessment. As examined the issue of valid sanction as raised by the learned counsel for the writ applicant. We take the notice of the fact that, the copy of the approval has been provided to the assessee at the stage of passing the order of disposing the objections raised by the assessee. Therefore, it is evident that, in the instant case, the authorities concerned have given approval after due application of mind and expressed their satisfaction with regard to the reasons recoded for reopening of the assessment. No hesitation to hold that it could not be said to have that there was no material or grounds before the Assessing Officer and the assumption of jurisdiction on the part of the Assessing Officer under Section 147 of the Act to reopen the assessment by issuing impugned notice under Section 147 of the Act is without authority of law, which render into the notice unsustainable. Therefore, the assessee failed to make out a case.

Issues Involved:
1. Validity of the sanction under Section 151 of the Act.
2. Factual correctness of the reasons for reopening.
3. Adequacy of the "reason to believe" that income chargeable to tax has escaped assessment.
4. Existence of a live nexus between the information received and the material gathered.
5. Permissibility of reopening for proving or fishing inquiry without specific findings.
6. Reopening based on borrowed satisfaction.
7. Reopening beyond a period of 4 years without failure of full and true disclosure by the assessee.
8. Reopening based on change of opinion.

Detailed Analysis:

1. Validity of the Sanction under Section 151 of the Act:
The petitioner argued that the required sanction under Section 151 was not obtained before issuing the notice for reopening the assessment. The court examined the approval process and found that the authorities had given approval after due application of mind and expressed their satisfaction with the reasons recorded for reopening the assessment. Therefore, the sanction was deemed valid.

2. Factual Correctness of the Reasons for Reopening:
The petitioner contended that the reasons for reopening were factually incorrect. The court noted that the reasons recorded by the Assessing Officer (AO) included detailed information about the penny stock transactions and the suspicious price movements of Tuni Textiles Ltd. The court found that the reasons were based on substantial information and were factually adequate to justify reopening.

3. Adequacy of the "Reason to Believe":
The petitioner argued that there was no "reason to believe" that income chargeable to tax had escaped assessment. The court held that the AO had sufficient cause or justification to believe that income had escaped assessment based on the information received and the subsequent inquiries. The court cited the Supreme Court's interpretation of "reason to believe" in Central Prominces Mangnese Ore Company Ltd. and Praful Chunilal Patel, affirming that the AO's belief need not be based on conclusive evidence but on a reasonable cause.

4. Existence of a Live Nexus:
The petitioner claimed there was no live nexus between the information received and the material gathered. The court found that the AO had made independent inquiries and applied his mind to the information received, establishing a live link between the material suggesting escapement of income and the formation of the belief that income had escaped assessment.

5. Permissibility of Reopening for Proving or Fishing Inquiry:
The petitioner argued that reopening was not permissible for proving or fishing inquiry without specific findings. The court held that the AO had specific information and had conducted inquiries that led to the belief that income had escaped assessment. Therefore, the reopening was not merely a fishing inquiry but was based on substantial grounds.

6. Reopening Based on Borrowed Satisfaction:
The petitioner contended that the reopening was based on borrowed satisfaction without independent application of mind by the AO. The court found that the AO had independently examined the information and formed his own belief, thus rejecting the claim of borrowed satisfaction.

7. Reopening Beyond a Period of 4 Years:
The petitioner argued that reopening beyond a period of 4 years was not permissible as there was no failure on their part to make a full and true disclosure. The court noted that the AO had received new information about the penny stock transactions that was not available during the original assessment. Therefore, the principle of change of opinion did not apply, and the reopening was justified.

8. Reopening Based on Change of Opinion:
The petitioner claimed that the reopening was based on a change of opinion. The court held that the information about the penny stock transactions was new and was not considered during the original assessment. Therefore, the reopening was not based on a change of opinion but on new information that justified the reassessment.

Conclusion:
The court concluded that the AO had sufficient material and valid reasons to believe that income had escaped assessment. The reopening of the assessment was found to be justified and within the legal framework. The writ application was dismissed, and the impugned notice for reopening the assessment was upheld.

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